CONSTRUCTION & REAL ESTATE BLOG

What is spot zoning? That was one of the questions before the Appellate Division of the Superior Court of New Jersey in Hal Holding, LLC v. Mount Laurel Township, Superior Court of N.J., Appellate Division, A-1340-10T2 (May 4, 2012.)

In that case, the parties were disputing whether an ordinance passed by Mount Laurel Township requiring a parcel of land to be maintained as a golf course was an invalid exercise of the Township’s authority. One of the issues in the case was whether that ordinance constituted “inverse spot zoning.” That is a principle of law which states that when a land use decision “arbitrarily singles out a particular parcel for different, less favorable treatment” than the less favorable ones it will be examined to see if the decision was arbitrary in nature. Riya Finnegan, LLC. V. Twp. Council of S. Brunswick, 197 N.J. 184, 197 (2008) quoting Pen Cent. Transport Co. v. N.Y. City, 438 U.S. 104 (1978).

In Hal Holding, the Court found that there had been no inverse spot zoning. Although the ordinance “was intended to affect, only one property: the subject property [the golf course], [in order to find that there was inverse spot zoning] the zoning must also constitute arbitrary treatment. Here, given that a purpose of the ordinance ‘was to promote the continuation of open space and natural features adjacent to fully developed residential areas,’ and the subject property consisted of open space (a golf course) adjacent to fully developed residential areas the disparate treatment here is not arbitrary.” Id. at 11.

May a property owner object to the appeal of a Zoning Board decision solely on the basis that the way the appeal was handled presented an appearance of impropriety? This question was addressed by the Supreme Court of New Jersey in Kane Properties, L.L.C v City of Hoboken, 2013 WL 3197164 (NJ 6/26/2013). [READ CASE HERE]

In that case, plaintiff applied to the Hoboken Zoning Board to obtain the required variances to develop a twelve story high-rise. During a Zoning Board hearing, the Skyline Condominium Association, Inc. (“Skyline”), objected to the development proposal. However, the Zoning Board granted the variances to plaintiff anyway. Skyline appealed to the Hoboken City Council challenging the approval of the plaintiff’s variances.

However, an issue arose when the attorney for Skyline, Michael Kates, Esq., was appointed to serve as Hoboken’s Corporation Counsel. Although he resigned as counsel to Skyline, nevertheless, Plaintiff objected to Kates’ participation in the proceedings before the City Council respecting the same matter. Accordingly, Kates recused (separated) himself from participating in those proceedings.

The City Council considered whether to reverse the variances given to plaintiff. Although Kates was supposed to have totally recused (separated) himself from those proceedings, he did become involved in aspects of them. Indeed, as the Supreme Court would later note, “Kates acted as counsel to the governing body, he answered questions from Council members, he advised them on voting procedures, and he signed the resolution following their vote to indicate he had approved it.” Id.

Ultimately, the City Council approved the Zoning Board’s decision. Plaintiff initiated an action in the Superior Court of New Jersey challenging the city’s decision. Ultimately, the matter was appealed all the way to the Supreme Court of New Jersey.

The Supreme Court found that Kates had violated a requirement that is normally applied to Judges: whether the action or inaction evokes the appearance that there has been an appearance of impropriety. In other words, even if technically each thing he had done was not an actual conflict of interest, taken as a whole, they appeared improper.

The Court noted that normally the appearance of impropriety standard applies to Judges, but nevertheless, when the attorney is advising a quasi-judicial body, the standard can also apply to the attorney. In this case, the City Council was considering an appeal of the Zoning Board’s determination, and that put it in a quasi-judicial capacity. For that reason, Kates’ activities were covered by the appearance of impropriety standard. Since he violated it, the Supreme Court sent the matter to the Law Division of the Superior Court of New Jersey to consider it anew in light of the Supreme Court’s ruling.

Does the ten year period of repose begin after a certificate of occupancy is issued? This question was answered in the negative by Fairview Heights Condominium Association, Inc. v R.L. Investors, Superior Court of New Jersey, Appellate Division (Docket No. A-3128-11T3).

In that case, construction of a condominium building owned by defendant was completed in 1988. Plaintiff filed a complaint against defendant two years after purchasing the condominium building from defendant in 2001. The lawsuit alleged that plaintiff had suffered damage from hazardous construction defects.

Defendants moved for summary judgment, which was granted. Although the Court found that the condominium building was in an unsafe condition due to defective construction by defendants, it determined that the claim was barred since

“the statute of repose bars any action whether grounded in contract or torn arising out of the defective design or construction of an improvement to real property or arising out of the defective and unsafe condition of an improvement to real property.”

In its determination, the Appellate Division cited the Supreme Court of New Jersey’s decision in Russo Farms v. Vineland Board of Education 144 N.J. 84 (1996). In that case, the Supreme Court held that the test for determining when the statute of repose would begin to run would be the point at which the construction had reached a stage of substantial completion.

The Appellate Division noted that this was in keeping with the trend among the majority of states. It determined that

“…the triggering point is tied to substantial completion of the construction project itself, rather than other factors such as obtaining a certificate of occupancy or, as plaintiffs would urge here, relinquishment of control…”

Id. 12

Is sum, the Appellate Division held that the claim was barred by the statute of repose because it would be unfair to permit the claims against defendant that are made more than ten years after substantial completion of the condominium building.

Does the time period to sue for deficient design, planning, surveying, supervision or construction of an improvement to real estate in New Jersey run from the substantial completion of a phase or component of a construction project or from completion of the entire project? This question was answered in State of New Jersey v. Perini Corporation, 425 N.J. Super. 62 (N.J. Super. Ct. App. Div. 2012).

In that case, the centralized underground system that distributed hot water through South Woods State Prison began to fail in 2000. The State of New Jersey claimed that the defects of the pipes were so serious that the entire system needed to be replaced. If not replaced, the prison would have to be shut down and all prisoners would have to be relocated. Plaintiff claimed the defects were a direct result of construction defects, product failure and design deficiencies. The state filed suit against companies that were responsible for the construction, materials and design of the system three days short of ten years from the date the certificates of substantial completion on the prison construction project were issued by the State.

The defendants argued that the claims were brought outside of the ten year limitation of the New Jersey Statute of Repose, N.J.S.A. 2A:14-1.1, which states:

No action, whether in contract, in tort, or otherwise, to recover damages for any deficiency in the design, planning, surveying, supervision or construction of an improvement to real property,…nor any action for contribution or indemnity for damages sustained on account of such injury, shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction or construction of such improvement to real property, more than 10 years after the performance or furnishing of such services and construction…

Plaintiff responded that the period should commence at a later point, namely when the certificates of substantial completion of the prison construction project were issued.

The court first noted that there was substantial precedent for the principle that the “ten-year statutory period runs from substantial completion of a component of a multi-phase construction project, not the completion of the project as a whole” Welch v. Engineers, Inc., 202 N.J. Super. 387 (App. Div. 1985). However, the court also recognized that the above principles would not necessarily apply to multi-phase projects. The determination would hinge on the meaning of the phrase, “improvement to real property” found in the Statute of Repose.

The Court found that:

The hot water system was not separately “an improvement to real property” within the meaning of N.J.S.A. 2A:14-1.1a. It was a component of an improvement, similar to the steel framing of a building, its roof, any mechanical or electrical system, or other components of a construction project

The Court noted that multiple phases of a construction project that are properly documented as separate projects in and of themselves can prompt separate periods of repose. In this case, however, the hot water system was not documented in that manner. Therefore, the statute of repose did not separately run from the point of completion of the hot water system.

The Consumer Fraud Act (“CFA”) aims to protect New Jersey consumers from unfair and unethical trade practices. In part, the CFA attempts to do this by requiring businesses to disclose certain information in writing when dealing with consumers. The CFA’s goal is to promote truth and fair dealing in the market place.

In Gemini Restoration Inc. v. Dr. Joseph Leone, et. al., A-6171-09T4 (N.J.Super. App. Div., August 3, 2012), a dispute arose between a homeowner (“Defendant”) and a contractor (“Plaintiff”) in regard to the performance of home renovations. Defendant hired Plaintiff to perform extensive renovations on his home because Defendant’s architect and friend, Christine Miseo (“Miseo”), recommended him for the job. The original contract between the parties was for the estimated total of $221,735.55. Id.at 2.

After Plaintiff began the renovations, Miseo sought a series of additions to the scope of the renovations. Plaintiff did not prepare a subsequent contract incorporating the additional work. However, he did submit to both Defendant and Miseo detailed bills reflecting the additional cost of labor and materials incurred each month. He submitted the bills to Miseo because Defendant explicitly told him that she was authorized to approve the bills each month. Indeed, she authorized various changes to the plan as the project progressed and accordingly, Plaintiff continued to work. Id.at 3-5.

Plaintiff sought payment from Defendant for the additional completed work that was not included in the initial contract. Defendant paid him for a portion of the additional cost; however he refused to pay Plaintiff the remaining $89,581.36. Id. at 3. Plaintiff filed suit in the Law Division of the Superior Court of New Jersey (the “Lower Court”) against Defendant for the balance due on a theory of breach of contract. Defendant asserted the defense to that claim by alleging Plaintiff’s contract violated the CFA in his counterclaim.

The Lower Court dismissed the breach of contract claim because it determined that the contract violated the CFA regulations that govern home improvement contractors. However, the Lower Court permitted Plaintiff to proceed under quantum meruit against Defendant. Quantum meruit is an equitable principle that allows a person to recover for the reasonable value of his or her services that he or she has rendered. It applies when there is, either, no contract or the contract is deemed unenforceable. Based on that principle, the jury returned a $92,000.00 verdict in Plaintiff’s favor. Id.at 1.

Defendant argued that Plaintiff should not have been allowed to proceed to the jury under quantum meruit because he violated the CFA. The Lower Court rejected that argument. It explained that Defendant was prohibited, based upon notions of fairness (equitably estopped), from invoking the CFA against Plaintiff because he was the one who induced the behavior. For example, Miseo, as Defendant’s representative, approved the bills, did not object to the fairness of the bills, nor did she indicate to Plaintiff that he should cease performance of the renovations. Id. at 4.

Defendant appealed to the Superior Court of New Jersey, Appellate Division (the “Appellate Court”). The Appellate Court explained that the CFA regulations governing home improvement contracts required the changes to the terms and conditions of a home improvement contract to be in writing and signed by all parties. Also, the regulations required that time and material contracts must clearly state the hourly rate for labor along with all other terms and conditions of the contract that affected the price. Furthermore, it stated that a violation of the CFA regulations were a per se violation of the Act. Id. A “per se” violation was a violation that was unlawful on its face, requiring no further inquiry into the facts. Id. at 5.

However, one may be equitably estopped from asserting the CFA as a defense to withhold payment from a general contractor when it would be unjust to do so. In its holding, the Court cited D’Edgio Landscaping v. Apicella, 337 N.J. Super. 116 (App.Div.2004). In D’Edgio, the defendant homeowner was equitably estopped from invoking the CFA against a contractor because defendant was the one who insisted that a written contract was unnecessary in light of their longstanding relationship. Id. at 6.

The Court also referenced Messeka Sheet Metal Co. Inc. v. Hodder, 368 N.J. Super. 116 (App.Div.2004) in which the plaintiff-subcontractor sued the defendant-homeowner to collect on a bill for installing air conditioners. In Messeka, the homeowner was not the one who hired the plaintiff. Rather, it was the homeowner’s general contractor who hired and directly dealt with the plaintiff. Therefore, because the CFA was designed to protect homeowners who deal directly with contractors, the defendant could not assert the CFA as a defense. Id.

Accordingly, in this case, the Court explained that Defendant was equitably estopped from bringing a CFA counterclaim because:

1) Similar to the defendant in Messeka, Defendant interposed his construction professional, Miseo, as an expert intermediary between himself and Plaintiff. Therefore he was not a vulnerable consumer who needed the CFA’s protection; 2) Plaintiff disclosed the amended work and the rates charged for that work; 3) Defendant and Miseo were aware of those rates and Miseo approved them on behalf of the Defendant; and 4) Miseo recognized the rates as fair and reasonable within the industry.

Id. at 7-8.

Furthermore, the Court addressed Defendant’s argument that the Lower Court should not have allowed Plaintiff to proceed to the jury based on quantum meruit after determining that he committed consumer fraud. Id. at 14. The Court rejected Defendant’s argument. It stated that when a claim was stricken for failure to comply with the CFA regulations, the contractor could, under certain circumstances, proceed in quantum meruit. Thus, the Court upheld the jury verdict in favor of Plaintiff. Id. at 12.

In McCarthy v. Turner Construction, Inc., 17 N.Y. 3d. 369 (2011), Boston Properties, Inc. and Time Square Tower Associates, LLC (collectively “Property Owners”) leased a retail storefront to Ann Taylor, Inc. (“Ann Taylor”). Subsequently, by agreement (the “Agreement”), Ann Taylor engaged a general contractor, John Gallin & Son, Inc. (“Gallin”) to perform construction on its storefront. The Agreement stated that Gallin was solely responsible for and in control of the construction and was required to take reasonable safety precautions to protect the workers from injury. Id. at 372.

However, Gallin did not perform the construction itself; Gallin engaged Linear Technologies Inc. (“Linear”) as its subcontractor. Shortly thereafter, Linear hired Samuels Datacom, LLC (Samuels) as its sub-subcontractor. An electrician employed by Samuels (“Plaintiff”) was injured when he fell from a ladder while working on the project site. Subsequently, he brought an action in the Supreme Court of New York (“Lower Court”) for his injuries against Gallin and the Property Owners. Id. The Property Owners asserted a cross claim against Gallin for common law indemnification. Id. at 373. Indemnification is a legal concept that enables a defendant the right to be reimbursed for some or all costs associated with the suit by another person or entity.

The Lower Court held that the Property Owners and Gallin were vicariously liable for Plaintiff’s injuries. Vicarious liability is a legal concept that holds a third party responsible for the acts of another solely because of his or her relation to the actual wrongdoer. For example, under certain circumstances an employer could be held vicariously liable for his or her employee’s unlawful conduct.

Property Owners and Gallin reached a settlement under which they each paid the Plaintiff $800.000.00. The settlement itself was not in dispute. Instead, the question before the Court was whether the Property Owners could recoup some or all of that money from Gallin.

The Lower Court rejected the Property Owners’ cross claim for common law indemnification because Gallin was not actively at fault in bringing about the injury. Id. at 373. Thus, the Lower Court held that Gallin was not required to reimburse the Property Owners for some or all of the $800,000.00 they paid to Plaintiff.

The Property Owners appealed to the Supreme Court of New York, Appellate Division (“Appellate Court”). The Appellate Court affirmed the Lower Court’s holding.

The Property Owners appealed to the Court of Appeals of New York (the “Court of Appeals”). In their appeal, they argued that they were entitled to common law indemnification by Gallin, whether or not Gallin directly supervised and controlled Plaintiff’s work, based upon the Agreement. Id. at 374. That was the central issue before the Court of Appeals: whether a person or entity that does not supervise or control another can be liable to indemnify for the damages that party causes.

First, the Court of Appeals considered Labor Law §240(1) which imposes upon owners and general contractors and their agents a nondelegable duty to provide safety devices necessary to protect workers from the risks inherent in elevated work sites. Further, the Court of Appeals noted that §240(1) holds owners and general contractors absolutely liable for any breach of the statute, even if the job was performedby an independent contractor whom they did not supervise nor control.

Having said all of that, the Court of Appeals nevertheless held that a general contractor’s authority to supervise the work and implement safety procedures was not a sufficient basis for requiring common law indemnification. It explained that liability for indemnification may only be imposed against parties who exercised actual supervision. Thus, the Court asserted that a common law indemnification claim did not lie against a party who had contractual authority to direct and supervise the work at a job site but never exercised that authority because it subcontracted its contractual duties to another. Id. at 378.

The Court of Appeals also noted that an owner or general contractor, who was not at fault for the misconduct, still has the right to seek full indemnification from the party who was actually responsible for the accident. Id. A party’s right to indemnification may not only arise from a contract but may have also be based upon equity (what is fair and proper between the parties). Common law indemnification is generallyavailable in favor of an innocent party who was held vicariously liable for the wrongdoing of another. Id. at 375.

In its analysis, the Court explained that although the Agreement required Gallin to supervise and direct the work at the worksite, such a provision was insufficient to establish that Gallin actually supervised or directedPlaintiff’s work. The Court noted that this was especially so considering the following facts:

Gallin would not have directed Plaintiff as to how to perform his work. and

Gallin did not provide any tools or ladders for the subcontractors that worked at thesite.

Id.

Therefore, the Court affirmed the dismissal of Plaintiff’s cross claim for common law indemnification, holding that Gallin did not actually supervise, nor direct, Plaintiff’s work. Id. Thus, Gallin did not have to compensate the Property Owner for any of the $800,000.00 they paid to Plaintiff in order to settle his personal injury claim.

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